Revenue recognition

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In accounting, the revenue recognition principle states that revenues are earned and recognized when they are realized or realizable, no matter when cash is received.

It is a cornerstone of accrual accounting together with the matching principle. Together, they determine the accounting period in which revenues and expenses are recognized.^[1] In contrast, the cash accounting recognizes revenues when cash is received, no matter when goods or services are sold.

Cash can be received in an earlier or later period than when obligations are met, resulting in the following two types of accounts:

• Accrued revenue: Revenue is recognized before cash is received.
• Deferred revenue: Revenue is recognized when cash is received.